United Airlines (UAL) will release its third-quarter earnings after market close on Tuesday, October 16; and then the company will hold its earnings call the following morning at 10:30 a.m. ET.

UAL has had a strong run so far in 2018, up 17.99% year to date, despite having dropped more than $10 over the past month. Rising travel demand has been a positive for the industry, while rising jet fuel costs, which are up 39.23% over the past year, as well as higher labor costs and other expenses, have been negatives.

For Q3, UAL is expected to report adjusted EPS of $3.08, up from $2.22 in the prior-year quarter, on revenue of $10.93 billion, according to third-party consensus analyst estimates. Revenue is projected to increase 10.7% year over year. The last time UAL reported, management upped their 2018 adjusted EPS guidance to a range of $7.25 to $8.75.

In Q2 2018, UAL reported domestic passenger revenue per available seat mile (PRASM) was up 1.6% year over year, while international PRASM was up 4.3%. Increasingly segmenting cabins into different priced tiers, as well as baggage fees and other charges have been some of the factors that have helped maintain PRASM growth.

As is always the concern with airlines, investors will likely be looking to see how management is balancing demand and capacity. In the past, airlines have rushed to add passenger capacity, which frequently ended up with fare wars and, ultimately, losses as the companies had to heavily discount tickets to sell them.

For 2018, management said it plans to increase available seat miles (ASM), a common capacity measure, by 4.5% to 5%. At the start of the year, management had said it planned on expanding it by 4% to 6%, so they’ve been slowly pulling back on capacity.

Fuel Costs Don’t Seem to Be Hurting. Despite rising costs, UAL powered to a new all-time high of $91.39 in mid-September. Since then, the stock has pulled back about $10 and it closed at $81.34 on Monday. As of Monday, shares are up 17.99% year to date. Chart source: thinkorswim®by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

United Airlines Options Activity

Around UAL’s upcoming earnings release, options traders have priced in about a 4.4% ($3.54) stock price move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 78th percentile as of this morning.

In short-term trading at the Oct. 19 monthly expiration, calls have been active at the 79 and 80 strike prices, as well as a decent amount of volume at the 85 strike, which was largely a result of a few larger traders. On the put side, the 80 and 81 strikes have been active in recent trading.

Looking at the Nov. 16 monthly expiration, there hasn’t been a whole lot of activity. On the call side, there’s been some volume at the 85, 87.5 and 90 strike prices, while puts have seen more activity at the 80 strike.

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